An Extraordinary Opportunity to Fix America’s Pension Crisis

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An Extraordinary Opportunity to Fix America’s Pension Crisis

In April 2020, Congress passed a broad humanitarian aid package in response to the COVID-19 virus. As part of the so-called Phase 4 stimulus planned for May or June, the nation’s most fiscally irresponsible states want to receive bailouts that will let them address a problem completely unrelated to the virus: their bankrupt pension plans.  Instead of being self-funded through the investment of contributions from the state and its pensioners, pension, and health care benefits in these states are paid largely with billions of dollars every year flowing from taxes and debt offerings.

So, it’s not a stretch to think that new federal money for COVID19 will somehow find its way into the nation’s most dysfunctional pension plans. New Jersey’s Phil Murphy, governor of a state with one of the worst pension crises in the country, is seeking a multi-billion-dollar, flexible block grant. Meanwhile, Chicago Mayor Lori Lightfoot, whose city is already junk-rated largely due to pensions, has warned: “This is something that can only be solved with billions in needed stimulus support from the federal government.”

With the shortfall in pension funds exceeding what Stanford’s Pension Tracker says was $5 trillion even before the meltdown, the state and local governments most mired in pension debt are using COVID19 as an excuse to seek additional help. Conceptually, they could demand direct aid for their state and local pensions, or aid for their own operations which would indirectly free up money to support those pensions.

Regardless of how it’s packaged, states and cities which bankrupted their funds through corrupt governance, long before the current crisis, shouldn’t get a free pass. 

Once you consider who the net recipients of the aid are and who the net providers of the aid are, it’s clear that pension reform and bailouts represent a crucial battle in what we’ve been calling the Second American Civil War. In short, such bailouts represent a transfer of wealth from value-creating taxpayers to value-destroying government employees, as well as from the prudent Red States to the imprudent Blue States.  And it’s all because states, including Illinois, New Jersey, and Connecticut, have refused real reform for decades, wreaking havoc on their residents and the retirement security of their workers.

In an opening bid to start the dialogue, the National Governors Association sent a letter to Senate Majority Leader Mitch McConnell asking for $500 billion to help states “cope with lost revenue.” That’s in addition to the $150 billion Congress provided for state and local governments as a part of March’s $2...

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